Archive for Rise of the RMB

More evidence of the rise of the RMB. I can add to this story by
telling you that major Fortune 500′s have also converted and started
paying suppliers in RMB if they are based in China. This is a new
phenomena as everyone was previously paid in USD. The RMB is only
a few years away from showing the world completely that the Dollar’s
dominance is history.

The Chinese yuan has vaulted ahead of the euro and Japanese yen to
become the second most widely used currency in international-trade
finance, another milestone in China’s bid to open up its currency.
Companies used China’s currency for 8.7% of credit agreements tied
to global trade in October, up from 4.4% a year earlier, according
to financial-services firm Swift, which monitors international currency
flows.

That puts the yuan above the euro and yen—at 6.64% and 1.36%, respectively
—although still well behind the dollar, which backs 81% of trade finance.
While trade credit is but a sliver of the $5.3 trillion-a-day foreign-
exchange market, the rapid adoption of the yuan underscores the rising
importance of the currency. In recent years, the Chinese government has
undertaken efforts to make it easier to convert in and out of yuan, with
an eye toward competing with the U.S. dollar as a global reserve currency.
The rising use of the yuan, also known as renminbi, in international-trade
credits is a sign that Beijing’s efforts to loosen its grip on the currency
are slowly paying off. “Companies are getting more of a comfort zone to trade
in renminbi,” said Debra Lodge, a New York based head of renminbi business
development at HSBC Bank USA NA. “It’s just a natural progression in
the opening up of China.” Statements following the government’s recent Third
Plenum meeting have led many observers to think that Asia’s largest economy
will see more-aggressive foreign-exchange reforms in the near future. Its
central bank announced a blueprint on Monday to facilitate cross-border
investments for businesses and individuals living in Shanghai’s pilot free-
trade zone. However, there are significantbarriers to the yuan’s wider use.
Tight government controls of money flowing in and out of China prevent
foreigners from easily holding yuan assets, and concerns about transparency
have also made many yuan assets unattractive to foreign investors.

“Changing China’s currency is not like turning a battleship; it’s like
turning an aircraft carrier,” said John Rutledge, chief investment officer
at asset manager Safanad SA. “It’ll take decades before the renminbi is
a stable, liquid currency like the dollar.”

Despite the jump in yuan use in trade finance, the currency
holds a relatively small 0.84% share of overall global
payments flows, Swift data show. Most of the trade finance
in China occurs with Hong Kong and Singapore, meaning
the yuan’s growing use is primarily a regional phenomenon
for now.
One explanation for why the yuan’s role in overall payments
lags its role in trade finance is that Chinese companies may
be using trade finance as a way to borrow money more
cheaply offshore. Trade finance includes so-called “letters of
credit,” which are bank-issued guarantees between two
companies that a payment will be made at a future date for a
specific good.
A Chinese company can get around the country’s capital
controls by getting a yuan-denominated letter of credit from
its Hong Kong subsidiary, for instance, and using the
proceeds to get a loan in Hong Kong for a lower interest
rate. China’s benchmark interest rate is 6%, while the offshore rate
is 0.5%. “It’s not the easiest to get money into or out of China, so
savvy Chinese businesses are using letters of credit as a way to borrow
at a lower rate outside of China,” said Alfred Nader, a vice president
at global payments firm Western Union Business Solutions.

If this is the case, the renminbi may not be gaining as much traction
in global trade as the numbers initially suggest. Still, the gradual rise
in yuan use globally is significant. This year, China became one of the
top-10 most traded international currencies for the first time, according
to the latest Bank for International Settlements report in September. Trading
in the Chinese currency has more than tripled in three years, to $120 billion
a day in 2013, the BIS said. By paying in yuan, American and other foreign
companies can get more competitive pricing from their Chinese suppliers.
Last year, China’s central bank said foreign importers could save 2% to 3% on
their invoices if they pay in yuan. For the Chinese supplier, accepting yuan
payments eliminates the fees to convert dollars to yuan, along with any risk
of exchange-rate fluctuations.

Someday…we will all use RMB. Watch the RMB quickly move
into the top 3 traded currencies as soon as China makes the
RMB convertible which should be in 2014.

WSJ
Milestone for Yuan Marks Rise of China

China for the first time joined the ranks of the most-traded international
currencies, underscoring the rise of the world’s second-largest economy
and the growth of the global foreign-exchange market. The Chinese yuan
vaulted to ninth in the Bank for International Settlements’ latest report
on foreign-exchange turnover, surpassing the Swedish krona and New Zealand
dollar, among other widely used currencies.

Trading in the Chinese currency, also known as the renminbi, has more than
tripled over the past three years, to $120 billion a day in 2013, the BIS
said, referencing survey data from April. Daily U.S. dollar trading in
2013 has averaged $4.65 trillion.

Yuan gains highlight China’s ambitions to play a larger role in a market
long dominated by the dollar and, to a lesser extent, the euro. Daily
global currency flows have risen more than 30% in three years. The yuan
ranked 17th in the previous BIS survey, in 2010. The shift also highlights
the international nature of the manufacturing supply chain and the
flexibility U.S.-based firms can gain by using yuan.

China and Britain have reached a three-year deal to swap their currencies
when needed, the first such agreement between Beijing and a major developed
economy and a move that could help boost the Chinese yuan outside Asia.
In a statement released late Saturday, the Bank of England said Governor
Mervyn King and his counterpart at the People’s Bank of China, Zhou
Xiaochuan, signed an agreement to set up a three-year swap line with a
maximum value of 200 billion yuan ($32.6 billion). It means that Bank of
England could draw on the line with the PBOC when there is a sudden
shortage of yuan funds in the U.K. market—and make the yuan, also known
as renminbi, available to banks under its jurisdiction.

WSJ
China’s central bank has increasingly used such bilateral currency-swap
deals in its effort to promote the yuan in global trade and finance.
So far, the PBOC has signed nearly two trillion yuan worth of currency-
swap deals with some 20 countries and regions, including Hong Kong,

Thailand, Singapore, New Zealand, Argentina and Malaysia. Most of the
pacts so far have been with emerging economies in the Asian-Pacific
region and don’t include major economies such as the U.S., Japan and those
in the euro zone. These currency lines, though rarely tapped, could enhance
foreign investors’ confidence in trading of the yuan. “The bilateral swaps
are a backstop of sorts but are still needed to help facilitate the growth
of renminbi in foreign markets, especially if challenging liquidity
conditions were to emerge,” said Paul Mackel, head of Asian currency research
at HSBC Holdings PLC in Hong Kong. The deal with Britain “is not just a
symbolic move because it will help support the overall depth and liquidity of
renminbi” in the U.K. market, he added.

An expansion of yuan trading into London could help China advance its goal of
turning the yuan into an international currency, a key part of its broader push
to open up its financial system. Currently, Beijing maintains a tight leash on
cross-border fund flows, making it difficult for the yuan to accumulate overseas.
Chinese officials in recent months have increased their rhetoric toward making
the yuan a freer currency, hinting that a plan on yuan convertibility would be
proposed later this year and include steps aimed at allowing freer flows of its
currency and ways to let Chinese individuals make overseas investments.

One year after the launch of direct trading between the renminbi and
Japanese yen, the daily trading volume between the two currencies has
reached 50-100 billion Japanese yen on the Shanghai market and
15 billion yen on the Tokyo market, a combined volume double that of
a year ago, according to China’s Ministry of Commerce.

The markets for direct trade of the renminbi and yen were set up in
Shanghai and Tokyo in June last year, removing the intermediary role
of the US dollar. Up to now, 300 Japanese enterprises have opened
renminbi trading accounts at the three Japanese banks with the largest
reminbi-denominated business, including 100 at Mizuho Bank, which now
boasts 10 billion yen of trading between renminbi and yen, 70% of the
volume on the Tokyo market.

According to the Chinese Communist Party mouthpiece People’s Daily,
trade between the yen and renminbi is related mainly to corporate trade
and investment settlement, as well as outward remittance of profits and
exchanges of expenses. Meanwhile, the rapid devaluation of the yen has
induced interbank trading with the purpose of benefiting from forex
trading. In addition, higher deposit interest rates and a rising exchange
rate have prompted many in Japan to hold renminbi.

People’s Daily notes however that the number of Japanese enterprises with
renminbi accounts is dwarfed by the number of Japanese enterprises in
China, which tops 20,000, and the volume of renminbi-yen trade on the
Shanghai market during the first three months of this year was only one
fourteenth the volume of trade between the renminbi and the US dollar.
According to Japan’s Ministry of Finance, half of China-Japan trade is
settled in the US dollar at present, followed by the yen with 30%-40%,
with renminbi accounting for a mere 1%.

A senior executive at Mizuho Bank notes that on the interbank trading
market in Tokyo, only 10%-20% of clients are taking part in renminbi
trading, adding however that the percentage will grow along with the
gradual liberalization of renminbi in overseas markets.

Cheng Yulin, a Chinese financial expert, said that in order to raise the
proportion of the use of the renminbi and yen in their trade settlement,
the two nations should expand the channels of fundraising and trade
settlement in their respective currency for investment, financing and
serviced trade in each other; develop more financial products denominated
in their respective currency in each other’s market; and jointly create
bond markets for infrastructure in East Asia and other countries on the
continent.

Another executive from Mizuho Bank says currently renminbi-denominated
products available on the Japanese market are quite limited and most of
the renminbi assets held by Japanese financial institutions flow to the
offshore market in Hong Kong to seek various investment opportunities.
In the future, Japanese banks will join hands with other financial
institutions in developing more renminbi-denominated products and if
China can issue renminbi-denominated government bonds in Japan, they
will be welcomed by Japanese investors.

The Singapore Branch of the Industrial and Commercial Bank of China (ICBC)
kicked off its RMB clearing service in Singapore on Monday, marking an
important step in Singapore’s development as an offshore RMB center.
ICBC’s Singapore branch is the first RMB clearing bank designated by
China in another country; with Hong Kong and Taiwan previously the only
places outside of Mainland China with designated RMB clearing banks.
On Monday, the Singapore branch cleared 53 transactions worth a total of
RMB1.61 billion, with 23 out of the 49 participating banks using the
clearing service.

Ever since the government’s announcement allowing the clearing of RMB spot
trades in Singapore from May 27, the world’s top banks have been racing
against each other to capitalize on the opportunities brought on by
Singapore’s offshore RMB bond market. HSBC and Charted Standard were the
first batch of banks to issue RMB-denominated bonds in Singapore, raising
a combined RMB1.5 billion.

Standard Chartered said its three-year senior unsecured issuance is priced
with a coupon of 2.625 percent and has generated over RMB3 billion in orders
from 75 investors across Asia. Meanwhile, HSBC priced its two-year fixed
rate notes at 2.25 percent, which is the first RMB bond to be priced
within the Association of Southeast Asian Nations (ASEAN) trade bloc.

“This issuance will help open the market to other issuers looking to fund
themselves internationally in RMB, offer new investment opportunities to
the substantial pool of wealth managed in Singapore, and assist in funding
the rapidly growing RMB-denominated trade business in Asia,” said Matthew
Cannon, head of global markets at HSBC Singapore.

Singapore has been widely expected to serve as a gateway for the use of RMB
in Southeast Asia, with the increasing trade between China and ASEAN and
the continuing appreciation of the RMB contributing greatly to the development
of Singapore’s offshore RMB market. Bilateral trade between China and ASEAN
amounted to US$138.97 billion in the first four months of 2013, up 18.1
percent year-on-year, while on Monday, the central parity of RMB against the
U.S. dollar hit a record high, reaching 6.1316.

“We see this as another milestone for Singapore in the development of its status
as an offshore RMB hub,” said Ray Ferguson, chief executive officer of Standard
Chartered Singapore. “Singapore already leads as a regional treasury center, is
a springboard to Southeast Asia along the key trade corridor with China, and
provides a hub for Asian wealth management and commodities trading. Singapore’s
contribution to the development of the RMB is further enhanced by this issuance.”

Deutsche Bank, Southeast Asia’s largest bank by assets, is reported to launch
RMB-denominated bonds in Singapore shortly. In another move, the Singapore
Exchange launched its depository services for RMB-denominated bonds on Monday,
in an effort to support Singapore’s development as an offshore center for issuers
and investors of RMB-denominated bonds.

As of the end of June 2012, RMB deposits in Singapore totaled RMB60 billion.
Meanwhile, the cross-border RMB volumes handled in Singapore ranked second among
overseas regions, behind only Hong Kong. In March, the Monetary Authority of
Singapore (MAS) and the People’s Bank of China doubled the size of their bilateral
currency swap facility from RMB150 billion to RMB300 billion, allowing MAS to
provide RMB liquidity to banks in Singapore.

USD/RMB at a record high of 6.15 and as we have written about in our
“Rise of the RMB” articles the Chinese currency is in full growth
mode on its way to countering the U.S.D.

CNS News
A press release from the Society for Worldwide Interbank Financial
Telecommunication (SWIFT) shows that the value of payments using
Chinese Yuan currency grew by 171 percent between January 2012 and
January 2013. In January 2013 alone, payments in the Chinese currency
grew in value by 24 percent from December, pushing the Yuan past the
Russian Rouble to the thirteenth slot for world currency payments.
This 24% spike is nearly double the 13% increase recorded across all
currencies. The SWIFT “RMB Tracker” (RMB is short for Renminbi or Yuan)
was launched in September 2011 and provides monthly reporting on the
progress made by the Yuan towards becoming an international currency.
The latest RMB Tracker report, released on April 25, shows that global
Yuan payments gained 32.7 percent in value for the month of March,
reaching an all-time high market share of 0.74%. This increase compares
with an average monthly increase of just 5.1% across all currencies.
According to the press release, the Yuan “continues to ascend the ranks
as a major international payments currency.”

The head of France’s central bank, Christian Noyer, has said a currency
swap agreement with China is definitely a way to go as the country seeks
to set up a mechanism to convert the Chinese currency within the
eurozone, reports the Beijing-based English-language China Daily.
Renminbi deposits in Paris have reached US$1.61 billion, the second
largest amount in Europe behind London. Around 10% of trade between
France and China has been settled in the Chinese currency, according to
the Bank of France.
The French central bank announced in February that it will sign a 3-year
currency swap agreement with the People’s Bank of China, for which
preparations are underway.
The People’s Bank has signed currency swap agreements worth up to 1.7
trillion yuan (US$275 billion) with more than 20 countries including South
Korea, Australia and Russia since the global financial crisis in 2008.
The currency swap is a foreign-exchange agreement between two
institutes to exchange the equal net present value principal of a loan
denominated in a different currency at a determined time, and pay the
interest corresponding to each currency.
The agreements signed by China with neighboring countries are intended
promote trade and the internationalization of the renminbi. Direct
exchanges also reduce the losses caused by foreign exchange
fluctuations.

SYDNEY—Australia and China have agreed to allow each other’s currencies
to be directly converted, Prime Minister Julia Gillard said Monday.
Starting Wednesday, the Australian dollar will be directly convertible
into the yuan and vice versa.

Australia will be only the third country to have such an arrangement
with Beijing, which is expected to cut costs for local companies doing
business in China, Australia’s biggest trading partner. Only the U.S.
dollar and Japanese yen are at present directly exchangeable with the
yuan.

The agreement does away with the need for companies and currency traders
to first convert their Australian dollars or yuan into U.S. dollars.
“This is a huge advantage for Australia,” Ms. Gillard told reporters in
Shanghai, flanked by executives from some of Australia’s biggest banks.
“It’s a strategic step forward for Australia as we add to our economic
engagement with China.”

The Australian prime minister, on a five-day visit to China that began
Friday, said the People’s Bank of China had already approved licenses
for Westpac Banking Corp. WBC.AU +0.89% and Australia & New Zealand Bank
to act as market makers for direct trading of the currencies.

“This takes costs out and makes it a whole lot more convenient,” said
Gail Kelly, chief executive of Westpac, said at the press conference.
Several major Chinese banks are also expected to be appointed as market
makers, said a person familiar with the matter.

China introduced a yuan/Australian dollar exchange rate to its onshore
currency market in November 2011, but trading of the pair has been done
indirectly through the U.S. dollar. Some analysts said the new agreement
would take time to change the shape of currency transactions between the
two countries. Australia’s exports to China are mostly bulk commodities,
including iron ore and coal, priced in U.S. dollars. Few expect that
arrangement to be altered soon. “There is still going to be an exchange
rate between the Australian dollar and U.S. dollar,” said Fariborz Moshirian,
a Sydney-based academic at the Australian School of Business. Australian
businesses have been slow to embrace the yuan, but that may be changing.
Local companies sharply increased their use of China’s currency for global
trade payments late last year, according to the Society for Worldwide
Interbank Financial Telecommunication, a global payments system.

Mike Smith, chief executive of ANZ Bank, expects trading volumes to grow
as a result of the new two-way agreement. “It will become a proper traded
currency mix and the volumes of that are limitless,” Mr. Smith said at the
press conference. The close economic relationship with China has helped
shield Australia from the turmoil in Europe and the fragility of the U.S.
recovery. About 20% of the nation’s exports go to China, with two-way goods-
and-services trade between the countries valued at 128 billion Australian
dollars (US$133 billion) for the 2011-12 financial year.

Ms. Gillard’s government has advocated a freer exchange-rate regime in China,
arguing that such a move is vital to balancing global growth. Recent talks
between the nations have been aimed at boosting yuan-denominated trade.

For its part, Beijing is slowly working to liberalize the yuan. In 2012,
it allowed the currency to move within a wider daily range against the U.S.
dollar as part of broader overhauls to help make it a more market-oriented
and globalized currency.

“It’s in everyone’s interest to see further internationalization of the
(yuan),” Ms. Gillard said.

If China has figured out that they will not loose any exports
raising the RMB, and shows BRIC Nations that debasing your currency
is not a path to prosperity it could signal the start of a death spiral
for the USD. As the world’s nations are no longer afraid to compete
against and undervalued Chinese currency, they will let their
currencies rise in tandem which is a natural market force against
a USD which is backed by the worlds largest debtor nation, and has
the worst balance of payments situation of any large developed nation.
Once America is forced to pay for their imports with something other
than printed money. The clock strikes midnight on American economic
and political domination. It will be the worst crisis in the U.S. since
the Civil War.

China Daily
BRICS Summit
The stronger yuan may be an indication that China wants to show its
fellow BRICS nations that it is making efforts to balance external
positions, Dariusz Kowalczyk, a Hong Kong-based Credit Agricole CIB
strategist, wrote in a note today. Leaders of Brazil, Russia, India,
China and South Africa will meet tomorrow for the fifth annual BRICS
summit in Durban, South Africa. Chinese Premier Xi Jinping, who arrived
in Tanzania yesterday, will attend the two-day meeting. Chinese banks
bought $121.2 billion of foreign currency from their clients and sold
$89 billion in February, leaving a surplus of $32.2 billion, the State
Administration of Foreign Exchange said today.

Russian banks are increasingly selling bonds in the offshore yuan market
as growing demand allows them to borrow at cheaper rates and gives them
a chance to diversify their funding bases.

Investors say they are keen to buy the bonds because they are often issued
by state-backed, high-profile Russian banks and offer an attractive yield
and exposure to the Chinese currency, known as the renminbi, or yuan.
Russian banks—including JSC VTB Bank, Russian Agricultural Bank OAO and
Russian Standard Bank ZA—have already sold the equivalent of $480 million
of the bonds this year, compared with $309 million in the previous three
years. Gazprombank OAO, the financing arm of energy giant Gazprom, OGZPY
+3.34% also issued yuan debt.

The trend illustrates the growing prominence of the offshore renminbi
market. Standard Chartered expects issuance to total between 320 billion
yuan ($51.3 billion) and 350 billion yuan this year, up from last year’s
record of 267 billion yuan.

“What’s driving this largely is yield, some expectation of currency
appreciation and the need for investors to put their renminbi somewhere
while they wait,” said Edmund Harriss, director at Guinness Asset
Management.

Mr. Harriss’s Renminbi Yuan Chinese Currency Fund bought VTB’s yuan
bonds, which offered a coupon of 3.8%, in January. Not only are the
yields on the debt attractive, investors have been drawn to the Russian
bonds because they feel more comfortable giving their money to Russian
banks than some of the Asian issuers.

A large percentage of bond issuance in the offshore renminbi market are
from either China or Hong Kong, and for European-based investors who
might not be familiar with these companies, the risk profile of these
issuers may be deemed to be on the high side,” said Liang Choon Koh,
head of Asia fixed income at Nikko Asset Management.

“They [investors] are more comfortable with issuers that have recognizable
brand names and those that are investment-grade rated.” VTB, Gazprombank
and Russian Agricultural Bank are all investment-grade rated, quasi-sovereign
borrowers, with experience issuing in the dollar and euro markets.
Russian Standard Bank has a high-yield rating, but is the country’s biggest
lender to consumers and one of its largest privately owned banks.

Mr. Koh said he looked at all three investment-grade issuers from Russia,
and bought some of the debt, but declined to say which banks’ bonds he
bought. Nikko Asset Management has a total of $154 billion in assets under
management. Demand for the yuan-denominated debt is allowing the banks to
borrow at cheaper rates than they could in the dollar or euro markets.
For example, Russian Agricultural Bank sold a three-year 1 billion yuan
bond with a yield of 3.6%. It pays 5.3% to investors in the dollar market
for debt of a slightly longer maturity of five years.

Alan Roch, head of bond syndication for the Asia-Pacific region at the
Royal Bank of Scotland Group RBS.LN -1.96% PLC, one of the banks that placed
the Russian Agricultural Bank bond, said he was very confident of selling
the Russian bank’s debt at a discount to the dollar market even before his
team visited prospective investors to pitch the sale.

The Singapore-based banker said RBS was seeing growing interest in issuing
yuan debt from non-Chinese issuers and Russian names in particular. At the
same time, demand to buy the debt is deepening as investors seek to diversify.

“European issuers have been quicker in identifying this and the more that
come and issue in renminbi, the more will want to follow, as their comfort
on the execution of these deals improves,” said Mr. Roch.

Artyom Lebedev, a spokesperson for Russian Standard Bank, said the attractive
cost of funding in yuan and the opportunity to diversify the bank’s debt
portfolio meant it would be eager to sell more debt in the offshore renminbi market.

A Bank of England pledge to help London become a global trading
centre for China’s yuan has stirred talk of a revival in the city’s
fortunes, similar to the explosion of the U.S. dollar market in
the 1960s and 70s.

In what many bankers saw as a pivotal move, the British central
bank said last month it was ready “in principle” to adopt a
currency swap line with the People’s Bank of China, providing a
two-way pipe to the City as the still-unconvertible yuan starts
to emerge as a world reserve currency.

Britain would become the first major developed economy to install
a currency swap line with China, replicating existing arrangements
available for the dominant freely-traded currencies such as the
dollar, euro and Japanese yen.

China has agreed swap lines with more than 15 other countries but
these tend to be emerging economies that have natural resources
or goods used in manufacturing to export. The list does not include
major industrial powers such as the United States, euro zone
countries or Japan.

However, in a deliberate push to internationalise the yuan, or
renminbi, China has been developing an offshore market for it, as
a precursor to allowing global firms, banks and asset managers
access to its domestic market.

China plans to make the yuan basically convertible as early as 2015
and eventually put it on a par with the U.S. dollar.

Britain’s commitment to a swap line with the world’s second biggest
economy should boost fledgling trade in the offshore yuan in
London, market watchers say, helping it to see off rival yuan
centres such as Frankfurt, Paris and New York. Click here for more.

Looks like the CNBC crowd is reading our stuff. We have had 50,000 unique
vistors in the last several months alone. Word is getting out!

From CNBC..

How the Yuan Could Take the Dollar’s Crown

China could eclipse the United States sooner than many think as the yuan
(renminbi) becomes a major player on the word stage that could put the
dollar in the shade, analysts told CNBC. China’s meteoric rise has propelled
it into second place among the world’s biggest economies, leaving only the
United States in its wake.

Consumption as a share of gross domestic product is still relatively low in
China (35 percent compared to around 70 percent in the U.S. according to the
World Bank). But a booming middle class could see the country move away from
its export driven economy to a more import and domestically focused market.
A market that would need a dominant yuan to allow it to have a trade deficit
but remain competitive.

“China is clearly seeking to internationalize the renminbi. It has a sequenced
strategy: use in trade settlements first, use for specified investment purposes
second, use as reserves third,” Barry Eichengreen, professor of economics at
the University of California told CNBC.

Hot money is flowing into Hong Kong to buy up renminbi, leading to a
shortage of money changers in the city who can supply the Chinese
currency. It is generally difficult to buy large amounts of renminbi
from underground money changers in Hong Kong, since they don’t have
huge reserves in hand. The owners of many foreign exchange outlets in
Hong Kong report that in the past two months, demand for the renminbi
has jumped 20%.

In 2011, the renminbi appreciated by close to 5% against the US dollar.
Hong Kong banks were reluctant to offer higher interest rates for
renminbi deposits due to the rules on renminbi trading and the limited
use for renminbi deposits within Hong Kong’s banking system. This year,
however, the scope for the use of renminbi has expanded considerably
and banks have begun to scramble for deposits, leading to rising demand
for renminbi in the market.

The Guangzhou Daily reports that major Hong Kong banks are soliciting
renminbi deposits, raising the annual interest rate for renminbi deposits
to around 3%, and are vying for renminbi wealth management products.
The Bank of China, for instance, is selling a wealth management product
with a two-month term which boasts yield rate of 3.9%, compared with
the meager 0.2% annual interest rate for one-year Hong Kong dollar
deposits.

The newspaper points out that the types and sales volumes of ETF
(exchange traded funds) and RQFII (renminbi qualified foreign institutional
investor) funds are increasing considerably, as many foreign investors
are investing in the Chinese stock market indirectly via these funds.
Up to now, China’s State Administration of Foreign Exchange has approved
192 QFIIs and the quota for RQFII has been increased to 200 billion yuan
(US$32 billion).

The demand for renminbi has given rise to large numbers of money brokers
for renminbi exchange and remittance in Hong Kong. Despite strict restrictions
on the cross-border movement of renminbi, these brokers provide services of
cross-border remittance of the renminbi and other foreign currencies.
Via cooperation with partners in China, the brokers can help clients bring
renminbi funds in or out of China. It can take as little as half an hour to
move amounts even as great as 10 million yuan (US$1.6 million).

The money brokers are thriving in Hong Kong, since they have no limit on the
amount of renminbi that can be exchanged, unlike Hong Kong banks which allow
local residents to convert a maximum of 20,000 yuan (US$3,200) a day. However,
clients must bear the risk of default by money brokers, since they must
transfer funds to the brokers’ accounts first before the dealers transfer
converted funds to the client’s account.

Chinese Yuan Hits Upper Limit for 17th Time in 19 Trading Days
人民币汇率一月内17次涨停
Nov 23, 2012 10:57 AM GMT+0800 | Prepared by ChinaScope Financial
| Source: NetEase | Author: NA
The USD/CNY spot rate once again hit the daily upper limit of 6.2277
during today’s intraday hours. This is the 17th such occurrence in
the recent 19 trading days, with only November 16 and November 21 not
seeing the spot rate reach its upper limit. The People’s Bank of China
today set the USD/CNY central parity rate at 6.2906, 12 basis points
stronger than the 6.2918 of the previous trading day.

The excess liquidity caused by quantitative easing in the world’s
major economies and stronger investor confidence in China’s economic
rebound have weighed heavily on RMB appreciation. Meanwhile, the PBOC
has also reduced market intervention and strengthened the role of the
market in the determining of exchange rates. This will not only promote
China’s market-oriented exchange rate reforms, but also help improve
the structure of Chinese foreign exchange reserves.

One of the friends of the CMR, Keith Huang, living full-time in
Mongolia reports that the USD and RMB are the only two foreign
currencies in widespread use in Mongolia.

As the report below shows…it is not just citizens who will
globalize the RMB and make it a global reserve currency. There
are European multinationals keeping billions in RMB in
Luxembourg accounts with Chinese banks.

From China Daily….

THE internationalization of yuan is gaining momentum as more and
more companies in Asia and Europe showed desire to use the
currency in the next six months, an industrial survey showed.

Foreign companies that hold offshore yuan deposits are planning
to use one or more yuan products in the next six months, indicating
wider adoption of the currency, Standard Chartered Bank said today.

The Renminbi Globalization Index, a measure of yuan-based business
activity worldwide, showed a seven-fold increase in yuan
internationalization between December 2010 and September 2012,
mainly driven by trade-settlement payments, the lender said.

A similar survey by HSBC last month also suggested widespread
confidence in the future of yuan as a major global currency among
Chinese enterprises.

Standard Chartered said Hong Kong currently dominates the offshore
yuan business, with a four-fifth share, while Singapore and London
are emerging as new yuan-business centers, each taking up a tenth
of the market. Taipei and New York are expected to join this club
in the coming years.

The China Money Report is the one-stop spot covering the end of the U.S.
Dollar global reserve currency status. For more information check our
articles under the category “Rise of RMB”.

From Shanghai Daily…

Chinese and Australian central banks are considering direct trading
between the yuan and the Australian dollar, central bank Governor Zhou
Xiaochuan said yesterday. If a deal is reached, the Australian dollar
would be the third major currency allowed to be traded directly against
the yuan, following the US dollar and the Japanese yen.

Other currencies used as intermediaries for China-Australia currency
trading are sometimes unstable, said Zhou. Bilateral trade, investment
and tourism relations between China and Australia have developed rapidly
in past years, resulting in growing demand for direct currency trading.

The Chinese and Australian central banks support direct trading, said
Zhou, adding that it would be “a good thing, a matter of course and a
choice that respects the market.” Meanwhile, Shang Fulin, chairman of the
China Banking Regulatory Commission, said the government did not have
“prejudiced regulations” on private investors seeking participation in
the banking sector.

“We have a uniform standard, threshold and benchmark for all kinds of
capital to enter the banking sector,” Shang said. “There is no legal
barrier for private capital to enter the banking sector,” he said, adding
that the CBRC had issued a guideline to encourage private capital
investment in the sector.

Private investment accounts for 50 percent of equities in small and
medium-sized commercial banks, and as much as 90 percent in financial
institutions in rural areas, he said.

The Federal Reserve has destroyed 95% of the value of the dollar
since its inception in 1913. The Fed is owned by the banks, they
have the power to print money for themselves. And people wonder
why the bankers make so much money. Now with unlimited QE, we have
structurally put in place a system for the banks to continue to
write bad derivatives and take profits on them while the assets get
shifted to the tax payers. We also get to pass on inflation to the
average American with the last ten years alone seeing oil up 5 times,
education up 3 times, and health care costs up 3 times. Th next ten
years will be much worse. The Yuan or Chinese RMB will supplant the
U.S. Dollar as the world’s reserve currency and the entire house of
cards in the U.S. will come down as they are forced to pay for their
imports with exports.

Japan sees this coming…and they might be the first nation to publicly
declare their fear of a Yuan World.

“If a country’s currency becomes a measurement for goods or
assets in other countries, it can generate profits easily and
without effort, the Sankei Shimbun said, citing the US dollar as
a typical example of such a currency”.

From Want China Times…..
Japanese media has said that the annual meeting of the International
Monetary Fund (IMF) and the World Bank (WB), which is to be held in
Tokyo, will aim at negotiating international banking issues.

However, it will be in fact, an occasion where each member state
gambles to secure its own interests in monetary policies.

If a country’s currency becomes a measurement for goods or assets
in other countries, it can generate profits easily and without
effort, the Sankei Shimbun said, citing the US dollar
as a typical example of such a currency.

Thus, Japan should be wary of the Chinese renminbi, which
is emerging as a base currency in Asia. China had begun
promoting the renminbi trade settlement service in South East
Asia after the financial crisis broke out in 2008. However, the
scheme has not been successful since most countries want to
settle their trade transactions using the greenback.

As a result, China attempted to expand its trade by signing free
trade agreements and pushing for a relatively stable relationship
between the Chinese yuan and the currencies of trading partners,
which would help boost their trade with China. The next step would
include recommending a renminbi trade settlement to them.
The Chinese have stated that trading in USD not only requires
transaction fees, but also poses exchange rate risks.
Changes in currency rates in Malaysia, Taiwan and Thailand have
fluctuated in line with the renminbi, the Sankei report said.
The New Taiwan dollar, in particular, has stuck closely with
the Chinese yuan. The Association of Southeast Asian Nations is
expected to follow in Taiwan’s footsteps soon.

Despite the minimal contact between the Japanese yen, the South
Korean won and the renminbi, the Korean won began to follow trends
similar to South East Asian currencies in early 2012. As per
China’s plan, all East China countries, including South Korea,
might be included in the renminbi economic zone.

Compared with other currencies, the frequently fluctuating Japanese
yen poses a bigger risk to both local and foreign enterprises as
well as the government itself. If the yen becomes a regional base
currency, it will be much more disadvantaged than the highly-
controlled Chinese yuan.

If Japan lets the renminbi become a dominant currency in East Asia,
Japanese businesses and financial institutions would hardly be able
to operate on the continent without using the currency and could
end up following China’s currency policy. Japan’s diplomacy and
national security would also be endangered, even as its economy
weakens.

The only measure Tokyo could adopt to meet China head on is to
propose a floating rate of the RMB for negotiations. Meanwhile,
Japan should also cooperate with the US to jointly contend with
China. The US too has strongly criticized China’s control over
its currency rate.

From Caijing
South Korea’s top central banker Thursday called for a permanent swap
between won and China’s yuan, as part of efforts to prevent the repeat
of another financial crisis and reduce reliance on the U.S. dollar, South
Korean media reported. Kim Choong-soo, governor of Bank of Korea, made
the comment at a seminar marking Sino-Korea financial cooperation of 20
years, on Thursday in Beijing.

The two countries last October decided to double a currency swap agreement
signed in April, 2009 to 360billion RMB and extend the period of validity
to the year of 2014. Kim suggested the two countries more frequent use of
Korean and Chinese currencies to settle payments for trade, in an effort
to maintain regional financial stability, cut exchange risks for trading
companies, and reduce reliance on the U.S. dollar. “Korea and China should
make policy efforts to promote the use of their currencies in a settlement
by establishing the necessary system and seeking to open the won-yuan foreign
exchange markets over the long term,” he added.
Financial cooperation between the two nations remains in the
infant stage, despite that China is South Korea’s No. 1 trading
partner, Korean media said. Meanwhile, Kim said that there is a need to
build up a strong financial safety net to prevent offshore financial turmoil
like the eurozone debt crisis from spreading into Asia.

WASHINGTON—China aims to turn a trickle of cross-border trade that is settled
in yuan into a stream, with Latin America and the Middle East as the next
possible focal points, Hong Kong’s U.S. envoy said.

Donald Tong, Hong Kong’s U.S.-based commissioner for economic and trade affairs,
said officials are quietly working on developing new yuan financial centers.

“My colleagues in Hong Kong have been working very closely with Beijing
whereby we could enhance the use of renminbi,” Mr. Tong said in an interview,
using another word for the Chinese currency.

The acquisition of the London Metal Exchange will be a breakthrough in further promoting
yuan internationalization and tapping the business potential of the mainland commodity
derivatives’ sector, the Hong Kong Exchanges & Clearing Ltd said. HKEx, the world’s
second-largest bourse by market value, successfully bid in June for the LME by agreeing
to pay HK$16.67 billion ($2.14 billion) to LME shareholders. The acquisition deal is
being reviewed by UK financial regulatory bodies and is expected to be completed by
the fourth quarter of 2012.

“The LME acquisition is a catalyst” for further expansion of the offshore yuan market,
HKEx Chief Executive Charles Li said on Wednesday at a press conference. “Currently,
mainland financial companies and industrial enterprises lack suitable offshore platforms
to hedge their commodity position risks and the LME platform will provide the much-needed
offshore trading venue,” said Li.

“In the due process, the segment of commodity trading by the mainland companies through
the LME platform can create some sort of yuan repatriation mechanism whereas the yuan
circulation between the onshore and offshore markets can be further enhanced,” Li added.
In addition to yuan internationalization, the LME acquisition will also bolster the revenue
stream diversification to the local bourse.

“The LME acquisition will turn the HKEx into a global horizontally and vertically integrated
exchange group, expanding beyond equities into additional asset classes,” HKEx Chairman
Chow Chung-kong said on Wednesday. The company, which lost its place as the world’s biggest
exchange operator by market value to the CME Group Inc, is seeking to broaden its business
as the pipeline of large initial public offerings from the mainland slows and equity volumes
fall. Besides the LME acquisition, the local bourse is also creating alliances with Shenzhen
and Shanghai counterparts.

“The HKEx will strive to expand the presence of the LME on the mainland as well as the Asian
commodity market. Acquiring the LME will give us an immediate scale presence in the commodity
derivatives sector,” Li said. Currently, the LME handles about 80 percent of base metal futures
and options contracts trading. “Over the years they relied almost totally on the cash market
turnover,” said Daiwa Capital Markets research head Jonas Kan. “Globally there is a lot of money
flowing to the bond market and the equity market has been suffering in a way. In some ways,
with the LME acquisition, their reliance on the cash market will further decline.”
The local bourse’s net profit declined 14 percent to HK$2.2 billion in the first half of 2012,
which missed analysts’ estimates due to the slump in the market turnover and listing fees.
The stock market’s daily turnover value tumbled 23 percent to HK$56.7 billion over the same
period due to the lingering European sovereign debt crisis which had taken a toll on market
sentiment. The HKEx declared an interim dividend of HK$1.85 a share, also representing a slump
of 14 percent from a year ago. “The profit decline was expected because of the lower turnover,
” said Daiwa’s Kan. “Going forward, it will depend on how it integrates the LME and whether
the average turnover will improve.”